One of the under-reported stories of Foreclosure-Gate is the ability of homeowners facing foreclosure to retain a foreclosure defense attorney, live in their homes without paying their mortgage, and either save their money or spend their money on something besides their mortgage. In states, such as Florida, the period of time where such homeowners can live for free could be many months and even years.
People continue to argue about the morality of living in one's home without paying. That said, with each new story of foreclosure and fraud by banks, there is less and less of a stigma for homeowners choosing to take such an approach.
To illustrate, here is an article that was published in the Wall Street Journal:
The mortgage-foreclosure mess could prove expensive for banks and investors. But in some states, it will also prolong an unintended economic stimulus: free housing for millions of defaulters.
Across the U.S., banks are running into problems foreclosing on homes because of flaws in their paperwork. Their main transgression involves the use of so-called robo-signers, bank employees who signed foreclosure affidavits without properly checking the required loan documentation. Major loan servicers-including Bank of America Corp., J.P. Morgan Chase & Co. and Ally Financial Inc.'s GMAC Mortgage-have at least temporarily stopped some foreclosure sales as state attorneys general probe their practices and loan servicers check to make sure their papers are in order.
The problems will be expensive for banks, and for investors in mortgage bonds, in terms of added processing costs and lost interest income. But for the millions of U.S. homeowners who have stopped making mortgage payments or who are already in the foreclosure process, the upshot is that they'll get to stay in their homes a bit longer. Given that they're not paying rent, that time has value.
Defaulters living in their homes are getting a subsidy worth about $2.6 billion a month, according to a Wall Street Journal analysis based on mortgage data from LPS Applied Analytics and rent data from the Commerce Department. That's 0.25% of U.S. personal income, roughly equivalent to the benefit top earners receive from Bush-era tax breaks.
The longer defaulters stay in their homes, the longer the stimulus lasts. The average borrower whose home is in the foreclosure process hasn't made a payment in nearly 16 months, according to LPS.
In most places, the foreclosure delays are unlikely to amount to more than a couple more months of free rent, says Ivy Zelman, chief executive of housing-market consultancy Zelman & Associates. But she says it could be six or more months in states such as Florida and New York, where the legal bottlenecks are most severe.
"In places where people get an extra month or two, it probably doesn't have much effect," Ms. Zelman says. "But in states where it lasts longer, it's probably stimulative."
It's hard to know how much of that money will find its way into the economy through consumer spending. Some defaulters sock away their mortgage payments, in hopes that they'll strike a modification agreement with their bank and get current again. Others have lost their jobs and hence most of their income, though the free housing might allow them to make purchases they otherwise would have to forgo.
Yolande Walker, who lived for two and a half years in her three-bedroom home in the Las Vegas suburb of Henderson, Nev., after defaulting on her $1,700-a-month mortgage payments in 2008, said the free housing helped her make ends meet after she lost her job as a commercial-loan processor. "I was able to make my car payment and keep from losing my car, and I was able to pay the utilities," said the 50-year-old Ms. Walker, who finally lost the home to foreclosure last month. She is still looking for work, and says her unemployment benefits are scheduled to run out in December.
Some homeowners who have defaulted on their mortgage payments are cashing in by renting out their homes. Joe Mayol, a real-estate agent in Palmdale, Calif., estimates that in his area about two-thirds of houses with defaulted mortgages are occupied, and half of those by renters. "People are getting money out of these houses," he said.
Ms. Zelman says her research suggests defaulters do spend much of the money on consumer services and goods. "People are taking what they would have been spending on a mortgage and spending it somewhere else," she says.
To be sure, while the free rent might help some people through periods of unemployment, it's not particularly encouraging to people who keep paying their mortgages, and it's not going to drive a recovery. It's also painful for local governments and school districts, which typically can't collect property taxes from defaulters. The foreclosure troubles can also add to uncertainty in the housing market and delay its return to healthy growth.
"I don't think that's the kind of consumer recovery we want, if the only reason they're spending a bit more is that they're not paying their other bills," said Joseph Carson, director of global economic research at Alliance Bernstein in New York.
Another question is what might happen in the housing market if banks caught up in robo-signing controversy can't put as many foreclosed homes up for sale. By taking some supply off the market, it could help support prices at a time when demand has been exceedingly weak.
Given the number of foreclosed homes that have already piled up in their inventory, though, banks already have more ready-for-sale houses than the market can bear. As of September, banks owned nearly a million homes, up 21% from a year earlier. That alone would take 17 months to unload at the most recent pace of sales, and doesn't include the 5.2 million homes still in the foreclosure process or those whose owners have already missed at least two payments.
Meanwhile, banks and investors suffer. It's hard to estimate how much it will cost to fix the paperwork problems. But the interest they could earn on the money from selling all the homes they own, together with the ones attached to delinquent mortgages, amounts to more than $10 billion a month.
Still, at least some of the banks' loss is the borrowers' gain.
If you are in foreclosure or considering a Strategic Default, then consider retaining the Carman Law Firm.
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The Carman Law Firm can assist those in need of debt and mortgage relief. With many options available and trusted answers to questions that someone might have about regarding credit card debt, short sales, loan modification, foreclosure and strategic default.
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